Small Businesses Benefit From Effective Employee Management Strategies

August 31 2006 - Effective HR practices can directly affect business results for small enterprises, according to a four-phase landmark study, conducted by Cornell University associate professor Christopher Collins, Ph.D. Sponsored by the Gevity Institute, Collins' study shows that small businesses implementing 'Effective Employee Management Strategies' can experience (in comparison to companies that do not):

• 22.1 per cent higher revenue growth
• 23.3 per cent higher profit growth
• 66.8 per cent reduction in employee turnover

This fourth stage of the Gevity/Cornell research looked at 323 businesses with between eight and 600 employees (average=53) across a wide range of industries. Manager/owners and employees were both surveyed to minimize bias.

The study divides HR practices into three categories:

1. Administrative Relief - processing payroll, taxes and insurance premiums and keeping records
2. Business Protection - maintaining up-to-date regulatory compliance, risk management practices and access to insurance programs
3. Workforce Alignment - employee selection, people management, and employee motivation and retention practices.

This study focuses on the third category. Workforce alignment practices have been shown in earlier studies to have a greater effect on business results than the other two categories combined. Businesses with aligned workforces can produce results that are 39 per cent better than those that do not have optimal people management strategies. The gap is only 8 per cent for the other two categories of HR practices.

Effect of Strategies

David Sikora, director of the Gevity Institute, says the results are definitive. "Through this unique and first-of-its-kind study, we have been able to quantify the impact that human resource practices have on small businesses. Rather than simply being an additional cost, investments in effective employee management strategies can help a small business grow sales and profits."

What are the most effective employee management strategies for small businesses? The study identified the most effective selection, people management and employee motivation and retention strategies:

1. Base recruitment on person-organizational fit rather than person-job fit. Hiring candidates who fit the organization's culture is more effective than recruiting solely on the basis of skills that fit a particular job.
2. Use self-management rather a controlling management strategy. When employees are empowered with greater discretion and trust they perform better than people who are tightly controlled and closely monitored.
3. Create a family-like environment/community to motivate and retain employees rather than focus on pay as a motivator.

The research also looked at the effect of different business environments on results and identified the conditions where HR practices can be most effective. The greatest business impact is experienced by companies that:

• are in highly competitive markets
• have high-growth goals
• employ more than 50 people

Sample findings:

"The study is groundbreaking because we've proven that specific human resources strategies have a meaningful, and statistically significant, impact to small business financial performance," said Christopher Collins, Ph.D., associate professor at Cornell's ILR School and Center for Advanced Human Resources. "So much of existing research concerns large companies. However, the relative impact of a single person leaving a small business can be an even greater setback. Our research clearly supports the importance of having a formal employee management strategy as part of any small business plan - either in-house or outsourced to a professional like Gevity."

"The results are encouraging to Gevity as one of the only human resource services providers that includes workforce alignment support in its offerings," said Erik Vonk, Gevity's Chairman and Chief Executive Officer. "Our unique ability to implement effective employee management practices enables us to assist our clients drive revenue and profit growth, while reducing employee turnover."